The good folks who administer the NFIP, along with virtually all flood insurance industry experts, recognize that more private flood insurance will help heal many of the nation’s flood insurance ills. You have been clear as to your position on counterproductive regulations and yet elements of the federal lending regulatory bureaucracy over which your administration has control continue to threaten to make private flood insurance more difficult to buy than an NFIP policy. Therefore, I implore you, Mr. President and members of the administration, to do what Congress appears unable to do; stop federal lending regulators from threatening private flood insurance and unleash the private market.

ADVERTISEMENT

Your administration can assure greater consumer choice when it comes to flood insurance; instruct federal lending regulators not to issue their ill-conceived proposed regulation on private flood insurance. A larger role for private flood insurance in absorbing America’s flood risk will set the stage for a revolution in the flood insurance marketplace that will deliver financial and ecological benefits for decades to come. You can direct lending regulators to stop defending the monopoly and let private flood insurance be sold like any other insurance product.

It should be understood that the NFIP was originally envisioned by Congress as a way for insurance companies to obtain the experience and knowledge to eventually relieve taxpayers from funding flood losses in perpetuity. Unfortunately, due to ill-considered nationalization of the flood insurance program in 1978, the threat of continued illegal regulation of flood insurance by federal lending regulators and the insertion of severely flawed technical language in previous reform legislation, private flood insurers have been unfairly disadvantaged. At the same time, the NFIP has grown into a massive, money-losing, government-run monopoly, leaving consumers with only a single option when it comes to flood insurance and taxpayers saddled with billions in bailouts and debt. This is a monopoly that has a storied history (think Hurricane Sandy) of providing insufficient coverage after charging inaccurate rates and delivering substandard claims and customer service.

The U.S. House of Representatives has demonstrated its readiness to pass meaningful reforms to relieve the struggling NFIP and spread more of the risk to the private market. In the meantime, private market flood insurers are lining up to take U.S. flood risk. The House passed the Flood Insurance Market Parity and Modernization Act of 2016 by a vote of 419-0 in the Spring of that year. However, a small cadre of senators put a sudden stop to a vote in the Senate.

We are fortunate to have well-intentioned public servants making up our lawmaking bodies, but this small group of individuals mistakenly believes that their constituents are better off in an inefficient taxpayer-funded flood insurance monopoly than in a far more efficient private flood insurance market. For decades, the NFIP has over-charged 50 percent of its policyholders and under-charged the other 50 percent, while it has racked up $42 billion in taxpayer-funded losses, equating to more than half of every claim paid by the NFIP since 1978.

What these lawmakers need to understand is this: About 30 percent of NFIP claims payments go to the same 3 percent of insured “repetitive loss” structures year after year. When you do the math, this means that the other 97 percent of their flood-exposed constituents could have paid in less and still netted larger claims payouts if they had better access to private flood insurance. In fact, a recent white paper by Milliman found that 90 percent of homes in Sandy-struck New York and New Jersey would see reduced flood insurance rates through private insurers. Surely these members of Congress do not want to continue punishing 97 percent of their constituents.

Nearly everything that is failing within the NFIP could be corrected with exposure to competition. For example, FEMA operates using outdated flood mapping technology. Current NFIP flood zone maps are blatantly unfair, requiring only a fraction of those who should buy flood insurance to do so while leaving a majority of flood-exposed property owners believing they have no risk. Disallowing lending regulators from diminishing the availability of private flood coverage will bring to bear major advancements in technology for flood mapping. This will allow American homeowners to truly understand their flood risk exposure and incorporate that knowledge into their insurance purchasing decisions. At the same time, with these enhanced flood mapping systems, zoning boards will vote against building in high-risk flood zones as flood insurance would be deemed unaffordable.

Most members of Congress and the administration want improvements, as do the majority of all consumers and taxpayers, as well as those within the insurance industry and the NFIP itself. Whether they be members of Congress or members of your administration, those who by omission or commission impede the free market are promoting inefficiency and waste.

The NFIP will be a necessary part of America’s flood insurance solution for decades to come, but it will serve either as a buoy or a lead weight. Mr. President and members of the administration, please act to keep America’s taxpayers from sinking under that lead weight. The NFIP will buoy America best as a backstop to a thriving private market for flood insurance, not as a cumbersome monopoly supported by feckless regulation of the private market.